Analyst: Wal-Mart's RFID Suppliers Are ResistingAnalyst: Wal-Mart's RFID Suppliers Are Resisting

Wal-Mart's attempt to force its suppliers to comply with its Radio Frequency Identification (RFID) program is running into stiff resistance from its top 100 suppliers who view the program as being light on benefits, according to a report released Tuesday.

The AMR Research report examines Wal-Mart's January deadline for implementation of initial stages of its RFID program.

"This implementation is not going as well as expected," said Kara Romanow, AMR research director and author of the report. "(The top 100 suppliers) are going along because Wal-Mart is their biggest customer. It's not optional for them."

"Many of Wal-Mart's suppliers are more convinced than ever that there is no ROI, and even worse, consider their technology investments to be a throwaway thus far. Because of this, they've only spent the bare minimum needed to comply."

Romanow, who counts several Wal-Mart suppliers as AMR clients, said she is in frequent communication with Wal-Mart suppliers. She found many are distressed by the giant retailer's mandate that the top 100 suppliers' cases and pallets be RFID-tagged by the end-of-January 2005 deadline. In addition to the top 100 suppliers, 37 smaller suppliers volunteered for the Wal-Mart RFID program, Romanow said.

A nagging problem for suppliers is the relatively high cost of implementing Wal-Mart's RFID program. "Many suppliers can't afford to put a 35-cent tag on items," she said. "But they can start tagging some (higher-priced) individual units." Romanow explained that it is too expensive to tag inexpensive consumer items like toilet paper and toothpaste, although it may make sense to tag higher-priced items such as DVDs and other consumer electronics products.

"The cost of hardware and software, including tags and readers, is still higher than the industry anticipated," she said. "The ROI equation is heavily skewed toward the high cost of tag."

However, suppliers are attempting to be technically compliant with Wal-Mart's mandates by tagging a modicum of products, hoping to please Wal-Mart and hoping that the cost of RFID technology drops enough in the future to make its implementation worthwhile, Romanow said.

Romanow said Wal-Mart's top suppliers have spent between $1 million and $3 million each on RFID so far for tags, readers, and minimal software while AMR's research indicates that each supplier would have to spend from $13 million to $23 million on the technology for it to be fully effective.